Comparing the Cost of Cloud vs. Colocation

Is colocation cheaper than using a cloud computing services to run the same workload? It is if you run highly-utilized servers, according to Vijay Gill, who recently ran a comparison using Amazon Web Services pricing as a benchmark. Gill is the Senior Manager of Production Network Engineering and Architecture at Google, and knows a few things about data center cost analysis.

Gill posted a spreadsheet outlining his analysis, which finds that an equivalent workload would cost $118,248 at Amazon and $70,079 in a colocation facility. Some commenters have critiqued Gill’s data, but his downloadable spreadsheet allows users to plug in different variables, providing a tool to evaluate the economics of different approaches and workloads.   

“Think of it as taking a taxi vs. buying a car to make a trip between San Francisco and Palo Alto,” writes Gill. “If you only make the trip once a quarter, it is cheaper to take a taxi. If you make the trip every day, then you are better off buying a car. The difference is the duty cycle. If you are running infrastructure with a duty cycle of 100%, it may make sense to run in-house.”

A duty cycle refers to the percentage of time a hardware asset is in use. Getting peak efficiency out of hardware is a key focus for Google, but the colo math won’t work as well for companies that get less mileage out of their servers. But cloud platforms will be more attractive to companies with lower hardware utilization.

“Very few businesses run at 100 percent utilization,” notes Katy Dormer, public relations manager for Amazon Web Services. “In fact, 15 to 20 percent utilization is more the norm.  A key benefit of Amazon Web Services is that you only pay for the services when you are actually using them. ”

Dormer also noted that users running at 100 percent utilization would likely purchase three year Amazon Reserved Instances, which provide savings of nearly 50 percent compared to using On-Demand Instances included in Gill’s model. Amazon offers an AWS Economics Center with tools and white papers to help users analyze costs associated with cloud computing.

Carol Brooks at SearchCloudComputing reviews some of the many calculators for analyzing return on investment on various cloud platforms. 

But Gill’s post and spreadsheet offer additional data points for companies analyzing the most cost-effective way to deploy growing infrastructures.

About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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  1. This dynamic is pretty well understood by many who have been analyzing cloud computing for awhile which is why cloud is seen as a great fit for "bursty", irregular and one-off intensive computing workloads. When the price of cloud is lowered through volume, then adopting cloud for all workloads will become more popular.

  2. I think the cost of Cloud computing is going to continue to decline. I think very few businesses will benefit from hosting their own cloud unless they are very large enterprises. Once the perception of security is addressed and with the convergence of cheap bandwidth and falling hardware costs. Cloud computing is here to stay and is going to be the standard operating procedure.

  3. I agree that the cloud is currently good for “bursty,” irregular and one-off intensive computing workloads, and that cloud computing costs are going to decline, making them more attractive for customers who don’t have 100% utilization of their data centers. What isn’t mentioned is the potential cost of not being able to provide the service, or not having control over the data center itself – two key issues. Until the service levels and the security of cloud providers get sorted out, those unknown/potential costs could further diminish the value of having the cloud available. There are a lot of very good, cost-effective co-location providers out there, and they can provide the infrastructure and the guarantees that make co-location a great option. The cloud guys aren’t there yet.

  4. Atlanta Data Center

    I think the cost of Cloud computing is going to continue to decline and that is good for the consumers

  5. What folks fail to mention in all this "flexible computing" banter is that in addition to the cyclicle nature of your business as it applies to computing is the need to adjust and update the computing systems themselves. Folks consider their entire environment whe looking at the ability to "flex" their computing needs which is entirely incorrect. How many resources that make up a given online comuting environment can simple be shutdown and deleted to be recreated latrer from a static impage? Maybe your front end web services assuming your website is largely static or content housed elsewhere :) ... that "elsewhere" is a big caveat It's likely a middleware or backend layer that can never be shut down. Can we spin down and spin up email servers? NO, directory services NO, databases? NO, print/fileshare/dynamic content.... NOT Likely Can we spin up/down our webservers? YES... er ... MAYBE All I'm saying is that if your environment uses a given number of devices/servers only a portion (Likely a small portion) can take advantage of the flexibility of the elastic clouds therebye significantly limiting their cost savings potential

  6. Rich

    Yes well done Gill, making sure cost is the only point emphasised here. It is just basic facts that cloud and co-lo are more expensive than building your own facility. As a well designed and built Data Centre will last you 10 / 15 years try looking at the return on investment rather than upfront costs. Cloud has been very well marketed but you just have to look at the small print to understand that the only silver lining is for the provider.

  7. Gary

    What about putting 1-2 server at a home-office? This is for a dating mobile app similar to Tinder. One thing I worry about is possible DDOS. In the case of such an app, I think its less of a threat. However, how is this guarded against? In colo, what firewall etc would you put up, and how might one do that at home-office? What other bandwidth issues might happen at home-office? Say you are in Kansas and have gigabit internet (nominally 1Gb up/down), shouldn't that serve you pretty well for the cost of 1 home line (very inexpensive ~$100/month)? Thanks!

  8. Greg Mitchell

    To expand on the Taxi analogy, it's not adequate to compare costs and state that you are better off to own a car if you make more frequent trips. What is being left out is the fact that with ownership you have now also taken on the responsibility for developing the skills and resources to maintain the car. So your savings are offset by the extra work and issues that arise from inexperience with the vehicle. So unless your primary focus is becoming a better mechanic why not leave that up to the Taxi driver.